Sunak’s plan to scrap national insurance is ‘far fetched’, economists say

Rishi Sunak's suggestion of scrapping national insurance by cutting welfare payments is "far-fetched" and could have "very serious" consequences for those who rely on benefits, economists have warned.

In an interview with the Sunday Telegraph, the prime minister said his "long-term ambition" by the end of the next parliament is to keep on cutting national insurance contributions (NICs) “until it’s gone”. Hinting at how he would pay for this, he said he would consult on plans to reduce working-age benefits, saying this would be a way to "sustainably keep cutting taxes", while "encouraging everyone who can to work".

But the Institute for Fiscal Studies (IFS) suggests Sunak would need to find more money from elsewhere, and that stripping benefits too bare is likely to mean a rise in poverty. "This does seem the seemed quite far-fetched. It's going to be tens of billions of pounds and certainly benefits are going to be a hard one to get that amount out of," research economist Sam Ray-Chaudhuri told Yahoo News.

With the UK spending around £100bn a year on working age benefits, Ray-Chaudhuri said it would, in theory, be possible to cut spending in this area to fund a phasing out of employee NICs, which is likely to cost tens of billions.

"In practice, it's going to be nigh on impossible to cut benefits by that much without running into severe difficulty," Ray-Chaudhuri added. "I suppose that's more political economy problems, which I'm not so well-versed in, but I certainly think the effects of such cuts would be could be very serious."

The IFS, an independent economics research institute, has previously highlighted the benefits of cutting national insurance. Ray-Chaudhuri said the tax places a "wedge between earned income compared to other sorts of income", which "seems a bit perverse when we want to be encouraging people to work".

However, he noted that the government has "remained very quiet" on employer NICs, which would also cost tens of billions of pounds to eliminate.

Sunak has suggested that the almost 2.5 million people of working age who have been signed off as unfit to work (nearly three times as many compared to a decade ago) are a sign of the benefits system not "working properly".

Figures released this week by the Office for National Statistics (ONS) show that more than a fifth of UK working-aged adults are not looking for work, otherwise known as being "economically inactive". This figure has remained high since the COVID-19 pandemic, with long-term illness cited as the main reason.

Ray-Chaudhuri said the evidence that cuts to the system get people get back into work are very mixed, adding: "Taking away benefits from those people could have very significant implications for their incomes, especially if they're unable to work.

"I'd point to during the pandemic when the amount you got for universal credit or increased quite significantly by around a thousand pounds a year. This coincided with a significant decline and poverty rate actually, so these things do have tangible impacts."

Cutting benefits will 'increase hardship without fixing problems'

The IFS is not alone in warning of some potentially quite harmful consequences of squeezing as much out of the benefits system as possible.

Ian Porter, senior policy adviser at anti-poverty think tank the Joseph Rowntree Foundation, said benefits are already "so inadequate" that they are "unable to afford the essentials".

He pointed to OBR figures, which show the government's recent tightening of the work capability assessment criteria will "result in almost 400,000 sick or disabled people who need to make a new claim from 2025 missing out on £390 a month, but with employment only increasing by around 10,000 people".

“The government needs to tackle the wider problems which make people unavailable to work like improving health and employment support and increasing job quality," he said.

Tom Pollard, head of social policy at the New Economics Foundation think-tank, said the government is proposing "more of the same failed policies".

He said: “This government has spent much of the last 14 years trying to reduce benefits, tighten eligibility for higher rates of support, and put more pressure on people to return to work. Rather than leading to falling costs, this approach has pushed more people into poverty and contributed to worsening health.

"What people need is a secure foundation from which to build: knowing they will have enough money to meet their basic costs, getting access to the public services they need to improve their health and overcome barriers to inclusion and, where possible, being supported towards appropriate and fulfilling jobs rather than pressurised into any job going.

"In contrast, the current system and the political rhetoric around it leave many people in a constant state of insecurity."